Capital Market operators on Monday lauded Dangote Cement’s proposal for a share buyback of up to 10 per cent of total shares in issue.
They said in separate interviews in Lagos that share buyback was a better option that would pay off in the long run.
Share buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market.
Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake.
Dangote Cement, on Dec. 27, said it would be seeking shareholders approval come Jan. 22, 2020 to undergo a share buyback programme in respect of 10 per cent of its issued shares.
The company said that the shares would be repurchased using part of the company’s profit to enhance return on investment to the shareholders.
It said the scheme was intended to improve the company’s return on equity and shareholder value in order to facilitate future long-term growth.
The company said that the buyback would also be either at the prevailing market price, or through a self-tender offer at a price to be determined by the board.
However, it will not be more than five per cent above the average calculated market price over the five days preceding the offer.
Mr Sola Oni, a Chartered stockbroker and Chief Executive Officer, Sofunix Investment and Communications, said that share repurchase was a strategy deployed by a company to reduce its float by taking advantage of undervalued shares.
“This helps to reduce cost of capital or equity financing for the company. It also helps to firm up the share price in the medium and long term.
“A company can use share buyback to consolidate its equity. This is a way of reducing the numbers of shareholders and thereby reduce the burden of dividend and bonus shares among others.
“The method increases Earnings Per Share (EPS) and boosts Return On Equity (ROE) for shareholders while upward trends in the share price as a multiplier effect of share buyback creates demand for the shares and therefore attracts more investors into the market,”Oni said.
Mr Ambrose Omordion, the Chief Operating Officer, InvestData Ltd., said that the Dangote Cement buyback share was the first in the history of Nigerian Stock Exchange.
Omordion said that the proposed share buyback was an indicator that Dangote Cement was trading below the fair value.
He said that companies which choose to buy back their shares were trading below the fair value.
He stated that the shares buyback would later be cancelled, and that would enhance value of Dangote Cement shares in the market.
“The cancellation of the shares will enhance earnings per share and better dividend. My take, for a long term buy Dangote Cement and at least hold for two or more years,” Omordion said.
Mr Moses Igburde, the Publicity Secretary, Independent Shareholders Association of Nigeria (ISAN), said it was the only right way for any company to reduce its shares volume not through fraudulent practice of share reconstruction.
“Share buyback brings money to a willing seller at the prevailing price; as the management of Dangote Cement buys, it will help the company to have manageable size of shares volume and this will increase the dividends pay out to shareholders.
“For Dangote Cement to take the right path of shares buy back means that other companies will follow suit instead of the fraudulent share reconstruction that has been legalised through the back door,” Igburde said.
He urged shareholders to endorse the resolution, noting that it was the only acceptable way of shares reduction all over the world.
Mrs Bisi Bakare, National Coordinator, Pragmatic Shareholders Association of Nigeria, said it would reduce the quantum of shares in circulation to enable the company to pay good dividend to shareholders.
Bakare said that the board and management wanted to use the opportunity of the share buyback to address its free float deficiency in the market.
